Western Digital Stock Falls 10% Despite Exceeding Profit Expectations
San Jose, Thursday, 6 August 2026.
Western Digital shares dropped over 10% on August 5, 2026, as investor concerns over rising inventory and future costs outweighed strong fourth-quarter revenue and earnings beats.
Market Reaction to Earnings Report
Western Digital Corporation (NASDAQ: WDC) experienced a significant decline in share price on August 5, 2026, dropping over 10% despite reporting fiscal fourth-quarter results that exceeded Wall Street expectations [1][5]. The hard-disk drive maker announced late on August 5, 2026, that revenue for the quarter jumped 44% year-over-year to $3.75 billion, yet investor sentiment was dampened by cautious guidance and broader concerns regarding semiconductor supply chain costs [1][8]. This disconnect between strong backward-looking earnings and sharp equity sell-offs highlights a growing market sensitivity around forward margins and technology sector valuation caps [1]. The stock traded down to approximately $467.34 following the earnings release, marking a stark contrast to the positive revenue surprise [5].
Financial Performance Analysis
For the fiscal period ending July 3, 2026, Western Digital reported GAAP diluted earnings per share (EPS) of $8.21, a substantial increase from the $0.67 recorded in the prior year period [8]. The revenue growth represents a significant expansion from the $2.605 billion reported in the quarter ended June 27, 2025, calculated as a year-over-year increase of 43.954 [8]. Operating income for the quarter reached $1.563 billion, up from $680 million in the same quarter of the previous fiscal year, demonstrating improved operational efficiency [8]. For the full fiscal year 2026, the company reported total revenue of $12.92 billion, a 36% increase over fiscal year 2025 revenue of $9.52 billion [8].
Inventory Levels and Market Valuation
Despite the revenue beat, analysts noted that inventory levels materially increased during the quarter, with Days Inventory Outstanding (DIO) rising to 80 days, up from 74 in the previous quarter [2][5]. This metric remains 39 days below the five-year average, indicating that while inventory increased, it may not yet represent excessive buildup relative to historical norms [5]. As of August 2026, Western Digital holds a market capitalization of $178.94 billion, ranking it as the world’s 119th most valuable company by this measure [3]. The company’s balance sheet shows total liabilities decreased significantly from $8.462 billion to $4.997 billion over the reported period, strengthening its financial position [8].
Future Guidance and Outlook
Looking ahead to the fiscal first quarter of 2027, Western Digital provided revenue guidance of $4.1 billion, plus or minus $100 million, which sits above analyst estimates of $4.04 billion [5][8]. Management anticipates a non-GAAP gross margin between 55% and 56%, with non-GAAP diluted EPS expected at $4.00 at the midpoint [8]. While sell-side analysts project future revenue growth of 42.7% over the next 12 months, the immediate market reaction suggests investors are weighing the costs of growth against potential margin compression [5]. The company expects to file its Annual Report on Form 10-K for the fiscal year ended July 3, 2026, with the SEC on or about August 14, 2026 [8].